Wondering how to up your investment game in 2021? Check out these smart investment tips for small businesses.
This past year has been anything but normal. This pandemic has turned our lives upside down. While almost all sectors and organizations of all scales were affected by the sudden shift in the economy, businesses across the board were not all hit the same. The small businesses had to put up a fight just to stay afloat in the market. And it’s just inevitable when even the big fish in the industries are scrambling to survive.
Changing consumer behavior patterns and some other pivotal changes in our lives has made it apparent that finding your footing in the market will be anything but easy. While businesses small and large are now chalking up plans on how to navigate the new normal, it is vital that you know where you stand in terms of new investment. And it doesn’t mean you have to sit back and watch without investing just because the economy has gone haywire. Rather, it can be the opportunity of a lifetime to invest in something long-term.
We have put together some tips for you to get started with it.
1. Learn to Diversify Your Investment
Investment is all about finding the fine balance between maximizing profit and minimizing loss. And diversification is the key to that balance. Instead of putting all your eggs in one basket, it allows you to spread them out.
Spreading out your investment in various industries or sectors has its perks. As you might know, not all industries react the same to an event. For instance, during the pandemic, the energy market has tumbled whereas the pharmaceutical and biomedical industry has kept soaring.
So, an investor who had all his investment in the energy sector might have to face a hard time recovering from the pandemic backlash. On the other hand, someone who has wisely spread out their investment in diverse sectors will have a better chance at surviving the aftermath.
Even though diversification is the one true sage advice that all veteran investors agree on, some investors are still tempted to go against it when they see the market is booming. The best way to ensure diversification in your investment is to look for products or industries that have a low or negative correlation between them. That way, if one market drops, the other will cushion the loss. You can check out Stock Rover to help you track and analyze the day-to-day events in the stock market. It will help you correlate industry trends and allow you to invest accordingly.
2. Keep Your Own Business Goal in Mind
When it comes to investment, small business owners always have to choose between investing in their own business or investing outside the business. And to be honest, there is no definitive solution for this dilemma. At one end, you might invest in an outside business, thinking you are doubling your capital only to lose what you had before the investment.
And the worst of it is that money could be spent in your business where your capital was needed. The takeaway here is if you find that investing in your business is vital for it to stay afloat, you must not invest that money elsewhere.
So how do you go about investing in your own business? Well, investment doesn’t always have to be about direct monetary profit. For instance, you can invest in training your employees. It might not provide you instant results, but over time those employees will turn out to be valuable assets for your business.
Or perhaps you can invest in new equipment or automation that will boost production for your business. Anything that moves your business toward progress is an investment. Besides, you have a good chance of getting a worthy return if you invest in your own business.
3. Start Investing in Mutual Funds
You need diversification to secure your investment, and investing in a mutual fund is the best way to go about it. Hundreds of investors team up here to invest in stocks, bonds, or other assets. When you want to diversify in a traditional way, you have to buy at least 20 different stocks from different industries to call it a “proper diversification.” The higher the number, the better is your chance at surviving a crash.
However, whether you buy just one share of a company or 100 shares, the brokerage house will charge you the same commission. And that just puts a damper on a new investor’s quest for diversification.
And that’s why you need mutual fund investment; it is like an instant diversifier, minus the burden of trading cost. As many investors group together in a mutual fund, the cost of trading is spread among many individuals, thus lowering the trading cost. Besides, Mutual fund investment provides the ideal opportunity to learn the ropes of investment for first-timers. So if you haven’t yet considered investing in a mutual fund, you definitely should.
4. Make Technological Investment a Priority
In 2021, technology will be an exciting sector to invest in. With little chance of brick and mortar stores ever getting back to their glory days, many businesses are transforming to digital ones. According to studies, almost 70% of businesses are planning to expand their technological transformation to cope with the change in the post-pandemic world.
And that just opens up a myriad of opportunities for tech investors. From artificial intelligence (AI) to software as a service (SaaS), there are many investment opportunities in the technology sector for you.
Investing in tech doesn’t have to only be on the outside. You can invest in the technological transformation of your own business. Businesses with strong technological foundations will be better able to bounce back from the backlash of this economic downturn
Figure out how to automate your business– from operation to even marketing. For instance, you can get software that tracks your business expenditure; it will significantly cut your cost and help you run the business more efficiently. So be it new software or a hardware upgrade, make sure you take a “no prisoners” approach when it comes to the digitization of your business.
5. Invest in Private Equity
If you are looking for an investment opportunity that will yield higher profits than the publicly traded companies, you might consider investing in private equity. This investment method allows you to be a part of a company that is not in public stock.
In private equity investments, investors gather funds to shape up a private company or regrow a dying company. When the company turns around, all investors share profit. As reshaping a company usually takes years, investors know they are in for a long haul and instant profit is not their goal.
Another key aspect of private equity is, it is not generally much affected by the market – at least not like the ups and downs of the stock market. However, there is just one downside of investing in private equity; the minimum threshold of investment is pretty high considering the price for stocks or bonds.
6. Go for Long Term Investment
There are many things in life that you can get impatient about, and investment is just not one of them. If you are looking for a short-term investment with a big turnover, just know there is another side to the coin, and it’s nothing you want to gamble on. Investment is like running a marathon; the longer you hold on, the more profit you can make.
Long-term investment will also help you weather market volatility. Almost all types of investment are riddled with uncertainty. Some investments just show day-to-day fluctuations, while others tend to fluctuate over a long period.
And it is the investment period that determines whether you will be able to withstand that volatility or not. If you are not in for the long haul, every little curve will make you react to the market trend. As a result, you might lose out on some long-term profit.
7. Have a Retirement Account
For small business owners, sometimes it can get difficult to keep their personal and business funds separate. And going all out for your business while your personal fund is zero can turn out to be unwise. Even saving only a tiny portion of your profit every year for retirement will make a world of difference to your financial stability years down the road.
You need to have a retirement account or savings as well as a business fund. Even if you are in your 30s, you will never regret having a retirement plan early on in your life. Even a traditional IRA can be a good start in that direction. Besides, investing in a retirement account can be part of your long-term investment goal.
The Bottom Line
Investing is not something to consider on a whim, and nor it should be a reaction to the current market condition. Because if you only react to the market, you are being controlled by the market, not the other way around. You have to put a good dose of forethought and calculation before you make your move. Whatever investment route you take, you must have a comprehensive idea about that method. Spread out your investment and make 2021 a year of financial success.
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